Topic: Insufficient Funds Fees
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Some of our loan customers make their payments from checking accounts held at other banks. Our bank originates ACH transfers to pull loan payments from the borrowers’ outside checking accounts. Can we charge a fee if these payments are returned for insufficient funds (NSF)? If so, does our bank need to disclose this fee?
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Yes, your bank may charge an NSF fee, and yes, it must be disclosed and agreed to by your customers. We are unaware of any limitation on charging reasonable NSF fees for returned ACH transfers under Illinois law. The Illinois Uniform Commercial Code (UCC) generally limits returned check fees to $25, but this limitation applies…
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Under Regulation E, can we charge a business customer an overdraft fee when a debit transaction creates an overdraft on their account? Do business account customers have to opt in to an overdraft program?
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Yes, your bank may charge overdraft fees to business customers for debit card overdrafts, and they are not subject to the opt-in requirements in Regulation E. Regulation E, including its overdraft and opt-in provisions, does not apply to business accounts. We also are not aware of any other law or regulation that would impose restrictions…
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We charge an insufficient funds (NSF) fee for deposited items that are returned by the payee bank. Section 3-806 of the Illinois version of the Uniform Commercial Code states that “a fee or charge not to exceed $4.50 may be assessed to any person or owner of a commercial checking account or other similar commercial account where a check or other draft that is deposited into the account is dishonored upon presentment . . . .” Does this $4.50 limit on returned check fees in Illinois apply to both commercial and consumer accounts?
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The Illinois Uniform Commercial Code (UCC) limits insufficient funds or returned check fees to $4.50 for commercial accounts, but it does not limit these fees for consumer accounts. For commercial accounts, the fees can be no higher than $4.50, but this limit expressly does not apply to “non-commercial checking or other non-commercial accounts,” which would…
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Does Illinois allow banks to charge for a returned check charge or dishonored item fee on a consumer loan? Most states are $25.00.
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Section 3-806 of the Illinois Uniform Commercial Code (UCC) provides that the person writing a check is “liable in the amount of $25, or for all costs and expenses, including reasonable attorney's fees, incurred by any person in connection with the collection of the amount for which the check or other draft was written, whichever…
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We plan to start offering a bill pay service through a third party vendor. When paying a customer’s bill, the vendor will pay the bill directly (by check) and separately initiate an ACH debit against the customer’s account for the bill amount. If the customer’s account has insufficient funds, we will reject the ACH debit and charge the customer an insufficient funds (NSF) fee. We will not charge any other fees and will not pass on the vendor’s fees to the customer. In the event of a rejected ACH payment, the vendor will attempt to collect the unpaid amount from the customer and will freeze the customer’s other bill payments made through its service for three days. If the bill pay vendor cannot collect from the customer within sixty days, it will collect the unpaid amount directly from our bank, and we will assume the collection efforts. Would this arrangement be considered an overdraft program requiring the customer’s opt-in under Regulation E?
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No, we do not believe this arrangement would be considered an overdraft program, nor does Regulation E require a customer to opt-in before charging an overdraft fee for an ACH transaction. Regulation E defines “overdraft service” as “a service under which a financial institution assesses a fee or charge . . . for paying a…
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What is the limit on returned check fees for commercial and consumer accounts? Do those limits apply to the Missouri branches of an Illinois-chartered bank? Our research has shown that Missouri does not limit returned check fees for commercial accounts.
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The Illinois Uniform Commercial Code (UCC) limits returned check fees to $4.50 for commercial accounts. We are not aware of any limits on returned check fees for commercial accounts in Missouri. The applicability of this Illinois $4.50 limit on returned check fees for the Missouri branches of Illinois state-chartered banks is a complex question that…
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One of our customers recently deposited a check dated September of 2014. We attempted to collect the check twice, and the payee bank returned it for insufficient funds (NSF) both times. The payor bank then called and asked us to reimburse its customer for the NSF fees that it charged to its customer, since the check was “stale.” Is that required?
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No, we do not believe your bank is required to reimburse the NSF fees paid by the drawer of the check. While the UCC requires banks to pay checks that are deposited within six months of the check’s date, it also permits banks to pay checks that are older than six months (provided that the…
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Is it permissible for a bank to charge a fee greater than $4.50 for a returned check fee on a commercial account? What’s the rationale behind this limitation on commercial account fees?
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No, you may not charge a fee of more than $4.50 for returned checks or other drafts on a commercial account. However, this prohibition does not apply to consumer accounts. This provision was revised in 1991 to permit banks to charge commercial customers for returned checks, which previously had been prohibited since 1985. The $4.50…
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We want to implement three new fees for all of our loan customers: an NSF fee, an expedited payoff fee (for sending payoff statements via fax or courier), and a check-by-phone payment fee. How should we disclose these new fees? We are considering doing this for all of the types of consumer loans that we make.
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In general, if you charge any new types of fees, your customers must agree to them. First, you should check your controlling loan agreements for provisions that might apply to the unilateral imposition of these new fees, as well as for any terms regarding the disclosure of new fees. It may be that there are…